Halifax and Bank of Scotland Said to Have $26 Billion Deal

By SUZANNE KAPNER with ANDREW ROSS SORKIN

Published: May 4, 2001

LONDON, Friday, May 4—
The boards of the Bank of Scotland and the Halifax Group, Britain's largest mortgage lender, have agreed to combine the companies in a deal worth about $26 billion, executives close to the deal said early today. An announcement is expected today, they said.

A combined Halifax and Bank of Scotland would create the fifth-largest British bank. The new group would control roughly one-fifth of the British mortgage market, one-third of Scottish banking and have 25 million customers, analysts said.

The transaction would be the successful end to attempts by the Bank of Scotland and its outspoken chief executive, Peter Burt, to merge, only to be thwarted by a competitor. Last year, the Bank of Scotland lost a bitter bidding war for control of National Westminster Bank to its crosstown rival, the Royal Bank of Scotland. It lost again in February when its bid for Abbey National was spurned in favor of a competing bid by the Lloyds TSB Group.

The deal, which the companies plan to describe as a merger, consists of a one-for-one stock exchange that will leave Halifax shareholders in control of about 63 percent of the combined company.

For Halifax, a merger with Bank of Scotland would allow its chief executive, James Crosby, to diversify further away from mortgages, which have been a drag on profits, and tap into Bank of Scotland's lucrative small- and medium-size banking enterprise. In an effort to branch out, Halifax has bought Equitable Life, St. James's Place Capital and several other asset-management and insurance companies.

The deal would allow Bank of Scotland to expand in England through Halifax's 20 million customers and about 800 branches. By comparison, Bank of Scotland is small, with just five million customers and 360 branches, most of them in Scotland.

Analysts expect the combined group to save £300 million by eliminating duplications in administrative functions. An additional £250 million in revenue is expected to be generated as the banks cross-sell products to each other's customers.

Most analysts say the deal will be approved by antitrust regulators, which have recently held up Lloyd's bid for Abbey National.

The new company will retain Bank of Scotland's Edinburgh headquarters and will be run by Mr. Burt, 56, until his retirement, when Mr. Crosby, 45, will succeed him.